Initial briefs of parties and third parties


II. ACTIONABLE SUBSIDY ISSUES



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II. ACTIONABLE SUBSIDY ISSUES
12. The United States has reviewed Brazil’s evidence and arguments underlying Brazil’s actionable subsidy claims and found them lacking. We will not repeat our criticisms of fundamental errors in Brazil’s legal interpretations. We do note that the evidence on the record does not demonstrate that US producers are unresponsive to market price signals, does not demonstrate significant price suppression in any "same market", does not demonstrate an increase in world market share, and does not demonstrate a threat of serious prejudice. Our comments today go principally to the consistency, or lack thereof, in Brazil’s arguments.
A. BRAZIL HAS FAILED TO ESTABLISH ALL OF THE ELEMENTS NECESSARY TO ESTABLISH ITS SUBSIDIES CLAIMS
13. Consider the fundamental issue of identifying the subsidized product and the subsidy.
1. Brazil has not identified which products benefit from the subsidy

14. If Brazil cannot distinguish the benefit to cotton provided by a subsidy from the benefit to other products – that is, attribute the subsidy to the recipient’s production – then it will lead to double counting of the subsidy benefit. Recall the example the United States provided in the opening statement with respect to soybeans and cotton. If a producer grows both soybeans and cotton and receives a $1 payment not tied to the production of any crop, according to Brazil’s approach, the entire $1 payment is attributed to and support for upland cotton. However, were Brazil to bring a dispute settlement proceeding against US support for soybeans (as was reported almost occurred roughly two years ago), under Brazil’s approach, the entire $1 payment would also be support for soybeans. The same $1 payment cannot provide both $1 in benefit to cotton and $1 in benefit to soybeans – that’s double counting. Therefore, the payment must be attributed across the value of the recipient’s production. As noted in the US further rebuttal submission, Brazil would attribute the value of the payment across all of a recipient’s production for countervailing duty purposes.

2. Brazil has not quantified the subsidy benefit attributable to upland cotton
15. If Brazil cannot properly quantify the amount of subsidy benefit to upland cotton producers, how can the Panel analyze the effect of the subsidy? Brazil cannot both claim that it need not quantify the benefit and at the same time argue that the subsidies provide $12.9 billion in aggregate support.
16. Similarly, if Brazil cannot properly identify the level of subsidization of the exported product, the Panel’s analysis will be impacted. Again, Brazil cannot claim that it need not identify the subsidization rate and at the same time claim a 95 per cent subsidization rate over the 1999 2002 marketing year period.
3. Brazil has not expensed the recurring payments at issue, contrary to its countervailing duty practice and inconsistent with its arguments in this dispute
17. Finally, Brazil cannot both expense the entire amount of these subsidies it admits are "recurring" to the year for which the payment was received (for example, marketing year 1999) and also claim that the subsidy continues to exist in a later year in which new recurring subsidies are made (for example, marketing year 2002). That is, if the subsidy continues to exist in a later year, it must have been allocated to future production. Indeed, Brazil would expense these recurring payments for purposes of countervailing duties.

18. The Panel must demand consistency from Brazil. It is not enough for Brazil to say that those concepts are for countervailing duty purposes, not for serious prejudice purposes. We were not aware that the concept and definition of "subsidy" as used in Part III and Part V of the Subsidies Agreement were intended to have different meanings. In fact, there is nothing in the Subsidies Agreement to suggest that they should mean different things.

19. Brazil not only rejects the Subsidies Agreement Annex IV methodology with respect to these issues, and not only rejects its own countervailing duty methodology, but does not provide any rational method of approaching these issues. Brazil’s approach results in dramatically inflated quantities of support and dramatically inflated levels of subsidization. The Panel should reject Brazil’s unprincipled approach to subsidy identification issues.
B. BRAZIL’S APPROACH TO ITS SERIOUS PREJUDICE CLAIMS AND THE PEACE CLAUSE MUST BE CONSISTENT
20. Similarly, as indicated in the US opening statement, the Panel must demand consistency from Brazil between its arguments for purposes of serious prejudice and the Peace Clause. First, Brazil cannot rely on the rate of support in US. law and regulations for purposes of its threat and per se claims and deny their relevancy to the Panel’s Peace Clause analysis.

21. Second, with respect to decoupled payments (such as direct payments), Brazil cannot attribute part of a decoupled payment to upland cotton producers and part to non producers, and simultaneously claim that such decoupled payments are not non product specific support. They are non product specific support because they are (in the language of Article 1(a) of the Agreement on Agriculture) "support provided to agricultural producers in general" and because they are not (in the language of Article 1(a)) "support provided for an agricultural product in favour of the producers of an agricultural product". That is, Brazil has acknowledged that some recipients of, for example, direct payments are not producers of upland cotton; they are, rather, "producers in general". Under the Agreement on Agriculture, support (such as direct payments) cannot at the same time be both product specific support and non product specific support. Thus, these payments would not form part of the Peace Clause (Article 13(b)(ii)) analysis.

22. Finally, it is clear that, under Brazil’s approach, there can be no non product specific support for purposes of the Peace Clause. This results because a subsidy payment can always be traced to a final recipient and then can always be attributed to whatever products he or she produces. One problem with this result is that a Member can then have no certainty that it will be in compliance with the Peace Clause in any given year.
23. Consider a hypothetical: under Brazil’s outlay approach to the Peace Clause, if a Member gave only decoupled support to producers, but in a given year all the recipients of the payment decided only to produce one commodity, the support (outlays) attributed to that commodity in that year could exceed the 1992 support level. But that would purely be a function of the recipients’ decisions, not the decision of the United States. Brazil’s approach therefore would rob Members of the ability to decide their support in a way to ensure conformity with Peace Clause requirements, and it must be rejected.

__________



1 The Panel also “invites the parties to explain their interpretation of the words ‘exempt from actions’ as used in Article 13 of the Agreement on Agriculture, as well as bringing to the Panel’s attention any other relevant provisions of the covered agreements and any other relevant considerations which the parties consider should guide the Panel’s consideration of this issue.”

2 New Shorter Oxford Dictionary, Volume 1 (1993 Edition), at 22.

3 Article XXV of GATT 1994 provides for “joint action” by the contracting parties to “further the objectives of this Agreement”. The decision by the contracting parties to approve the Tokyo Round results in 1979 was entitled “Action by the CONTRACTING PARTIES on the Multilateral Trade Negotiations”. BISD 26S/201.


4 See, e.g., Report of the Working Party on Article XVI:1 discussions on EC- Refunds on Exports of Sugar, BISD 28S/80.

5 New Shorter Oxford Dictionary, Volume 1 (1993 Edition), at 878.


6 Appellate Body Report, Brazil – Export Financing Programme for Aircraft, WT/DS46/AB/R (adopted 2 August 1999), paras. 143-44.

7 WTO Panel Report, Canada – Measures Affecting the Export of Civilian Aircraft, WT/DS70/R (adopted 20 August 1999), para. 9.15 (Panel rejected request for preliminary ruling based claims under DSU Article 6.2 and decided issues in final report); WTO Panel Report, Egypt – Definitive Anti-Dumping Measures on Steel Rebar from Turkey, WT/DS211/R (adopted 1 October 2002), para. 7.27-7.31 (Panel determined in final report that certain claims were not within its terms of reference); WTO Panel Report, India – Measures Affecting the Automotive Sector, WT/DS146/R and WT/DS/175/R (adopted 5 April 2002), paras. 7.44-7.103 (Panel rejected India’s threshold res judicata claims in final panel report); WTO Panel Report, United States – Anti-Dumping Duty and Dynamic Random Access Semiconductors (DRAMS) of One Megabit or more From Korea, WT/DS99/R (adopted 19 March 1999), para. 6.17 (Panel ruled in final report granting US’s preliminary objections that certain AD measures predated the WTO and could therefore not be subject to challenge); WTO Panel Report, Japan – Taxes on Alcoholic Beverages, WT/DS8/R, WT/DS10/R and WT/DS11/R (adopted 1 November 1996), para. 6.5 (Final report determined that a claim was outside of the Panel’s terms of reference); WTO Panel Report United States – Definitive Safeguard Measures on Circular Welded Carbon Quality Line Pipe from Korea, WT/DS202/R (adopted 8 March 2002), para. 7.121-7.126 (Panel rejected a Korean claim as beyond its terms of reference in the final panel report); WTO Panel Report, United States – Anti-Dumping Measures on Certain Hot-Rolled Steel Products from Japan, WT/DS184/R (adopted 23 August 2001), para. 7.22 (final report determined that the “adverse facts available“ claim was beyond its terms of reference).


8 WTO Panel Report, European Communities – Anti-Dumping Duties on Malleable Cast Iron Tube or Pipe Fittings from Brazil, WT/DS219/R (not yet adopted), para. 7.14 (preliminary finding made following first meeting with the parties that certain claims were not within its terms of reference); WTO Panel Report, United States – Countervailing Duties on Certain Corrosion-Resistant Carbon Steel Flat Products from Germany, WTDS213/R (adopted 19 December 2002), para 8.1 –8.2 and footnote 224 (Panel decided at end of first meeting that two claims were outside its terms of reference and provided reasoning in final Panel report); WTO Panel Report, United States – Import Measures on Certain Products from the European Communities, WT/DS165/R (adopted 10 January 2001), para. 6.11 (Panel issued preliminary ruling regarding scope of measures within its terms of reference at the end of the second meeting with the parties); WTO Panel Report, United States – Safeguard Measures on Imports of Certain Fresh, Chilled and Frozen Lamb from New Zealand and Australia, WT/DS177/R and WT/DS178/R (adopted 16 May 2001), para. 5.15 (Panel ruled during first meeting that panel request was sufficient in covering all the claims brought by Australia and New Zealand).

9 WTO Panel Report, WT/DS46/AB/R (adopted 2 August 1999).

10 These provisions provide as follows:

27.2: The prohibition of paragraph 1(a) of Article 3 [prohibited export subsidies] shall not apply to:

** ** ** **

(b) other developing country Members for a period of eight years from the date of entry into force of the WTO Agreement, subject to compliance with the provisions in paragraph 4.

27.4: Any developing country Member referred to in paragraph 2(b) shall phase out its export subsidies within the eight-year period, preferably in a progressive manner. However, a developing country Member shall not increase the level of its export subsidies, and shall eliminate them within a period shorter than that provided for in this paragraph when the use of such export subsidies is inconsistent with its development needs. . .


11 Appellate Body Report, WT/DS46/AB/R (adopted 2 August 1999).

12 Appellate Body Report, WT/DS46/AB/R, paras. 140-41 .

13 Appellate Body Report, WT/DS46/AB/R, paras. 143-44.

14 For example, Article XVI of the GATT 1994 and Part III of the Subsidies Agreement correspond to Article 13(a)(ii) of the Agriculture Agreement, GATT 1994 Article XVI:1 and Articles 5 and 6 of the Subsidies Agreement correspond to Article 13(b)(ii) of the Agriculture Agreement, and GATT 1994 Article XVI and Articles 3, 5, and 6 of the Subsidies Agreement correspond to Article 13(c)(ii) of the Agriculture Agreement..

15 See WT/DS267/7, at 3 (asserting claims based on Subsidies Agreement Articles 3.1(a), 3.1(b), 3.2, 5(a), 5(c), 6.3(b), 6.3(c), and 6.3(d) and GATT 1994 Articles XVI:1 and Article XVI:3).

16  The Peace Clause reads:
During the implementation period, notwithstanding the provisions of GATT 1994 and the Agreement on Subsidies and Countervailing Measures (referred to in this Article as the “Subsidies Agreement”):

(a) domestic support measures that conform fully to the provisions of Annex 2 to this Agreement shall be:

(i) non actionable subsidies for purposes of countervailing duties;

(ii) exempt from actions based on Article XVI of GATT 1994 and Part III of the Subsidies Agreement; and

(iii) exempt from actions based on non violation nullification or impairment of the benefits of tariff concessions accruing to another Member under Article II of GATT 1994, in the sense of paragraph 1(b) of Article XXIII of GATT 1994;

(b) domestic support measures that conform fully to the provisions of Article 6 of this Agreement including direct payments that conform to the requirements of paragraph 5 thereof, as reflected in each Member's Schedule, as well as domestic support within de minimis levels and in conformity with paragraph 2 of Article 6, shall be:

(i) exempt from the imposition of countervailing duties unless a determination of injury or threat thereof is made in accordance with Article VI of GATT 1994 and Part V of the Subsidies Agreement, and due restraint shall be shown in initiating any countervailing duty investigations;

(ii) exempt from actions based on paragraph 1 of Article XVI of GATT 1994 or Articles 5 and 6 of the Subsidies Agreement, provided that such measures do not grant support to a specific commodity in excess of that decided during the 1992 marketing year; and

(iii) exempt from actions based on non violation nullification or impairment of the benefits of tariff concessions accruing to another Member under Article II of GATT 1994, in the sense of paragraph 1(b) of Article XXIII of GATT 1994, provided that such measures do not grant support to a specific commodity in excess of that decided during the 1992 marketing year;


(c) export subsidies that conform fully to the provisions of Part V of this Agreement, as reflected in each Member's Schedule, shall be:

(i) subject to countervailing duties only upon a determination of injury or threat thereof based on volume, effect on prices, or consequent impact in accordance with Article VI of GATT 1994 and Part V of the Subsidies Agreement, and due restraint shall be shown in initiating any countervailing duty investigations; and


(ii) exempt from actions based on Article XVI of GATT 1994 or Articles 3, 5 and 6 of the Subsidies Agreement.

Agriculture Agreement, Article 13 (footnote omitted).


17 Agriculture Agreement, Article 13 (chapeau). Article 21.1 of the Agriculture Agreement also makes it clear that the Subsidies Agreement and GATT 1994 only apply “subject to” the provisions of the Agriculture Agreement, including Article 13 (the Peace Clause).

18 See Understanding on Rules and Procedures Governing the Settlement of Disputes, Article 3.2 (The dispute settlement system “serves to preserve the rights and obligations of Members under the covered agreements, and to clarify the existing provisions of those agreements in accordance with customary rules of interpretation of public international law.”).

19 The customary rules of interpretation of public international law are reflected in part in Article 31(1) of the Vienna Convention, which reads: “A treaty shall be interpreted in good faith in accordance with the ordinary meaning to be given to the terms of the treaty in their context and in the light of its object and purpose.”

20 The New Shorter Oxford English Dictionary, vol. 1, at 878 (first definition as adjective & noun) (italics in original).

21 The New Shorter Oxford English Dictionary, vol. 1, at 22 (first and second definitions).

22 Black’s Law Dictionary at 28 (6th ed. 1990) (emphasis added).

23  As further support for the fact that “action” includes dispute settlement, DSU Article 3.10 provides that: “It is understood that requests for conciliation and the use of the dispute settlement procedures should not be intended or considered as contentious acts . . .” (emphasis added).


24 Subsidies Agreement, Article 7.1.

25 The ordinary meaning of the term “actionable” is “[a]ffording ground for an action at law”. The New Shorter Oxford English Dictionary, vol. 1, at 22.

26 Subsidies Agreement, Article 10 fn. 35 (emphasis added).

27 Agriculture Agreement, preamble (third paragraph).

28 Appellate Body Report, India-Patents, adopted 16 January 1998, WT/DS50/AB/R, para. 45. (Emphasis added).

29 US Initial Brief on Question Posed by Panel, 5 June 2003.

30 Brazil´s Brief on Preliminary Issue Regarding the “Peace Clause” of the Agreement on Agriculture, 5 June 2003.

31 See, for example, United States – Measures Affecting Imports of Woven Wool Shirts and Blouses from India, WT/DS33/AB/R, page 16.

32 United States – Continued Dumping and Subsidy Offset Act of 2000, WT/DS217/AB/R, WT/DS234/AB/R, paragraph 271.

33 Black’s Law Dictionary, Seventh Edition, Bryan A Garner, Editor in Chief, West Group, St Paul, Minn., 1999, page 593.

34 The New Shorter Oxford English Dictionary, Ed. Lesley Brown, Volume 1, Clarendon Press, Oxford, 1993, page 187.



35 In para. 2 of its initial brief, the US argues
“[t]he United States respectfully requests the Panel to organize its procedures to first determine whether Brazil may maintain any action based on provisions exempted by the Peace Clause.”

36 Brazil concludes its initial brief as follows:
“[ ..] Brazil requests that this Panel find that it is not precluded from hearing evidence and considering Brazil’s claims under the ASCM or Article XVI of GATT 1994 without first concluding that the peace clause conditions of AoA Article 13(b)(ii) and 13(c)(ii) remain unfulfilled.”

37 For instance, that the arguments on Article XVI GATT and the SCM Agreement are not within the terms of reference of the Panel.

38 See paras. 7 and 8 of the US initial Submission.

39 Panel report, United States – Measures Treating Export Restraints as Subsidies, WT/DS194/R, adopted 23 August 2001, para. 8.2.

40 The Panel also “invites the parties to explain their interpretation of the words ‘exempt from actions’ as used in Article 13 of the Agreement on Agriculture, as well as bringing to the Panel’s attention any other relevant provisions of the covered agreements and any other relevant considerations which the parties consider should guide the Panel’s consideration of this issue.”

41 US Initial Brief, para. 7.

42 AoA Article 19: provides that “The provisions of Articles XXII and XXIII of GATT 1994, as elaborated and applied by the Dispute Settlement Understanding, shall apply to consultations and the settlement of disputes under this Agreement.”


43 US Initial Brief, para. 8.

44 Adopted on 28 November 1979; BISD 26S/210. The full text is set out in the GATT Analytical Index (6th Ed., 1995) at page 632. DSU Article 3.7 transposes paragraph 4 of the Agreed Description of the Customary Practice of the GATT in the Field of Dispute Settlement (Article XXIII:2) annexed to the 1979 Understanding; paragraph 4 appears on page 635.

45 US Initial Brief, para. 8.

46 DSU Article 4.5 was a transposition of paragraph 4 in the Agreed Description of the Customary Practice of the GATT in the Field of Dispute Settlement annexed to the (Tokyo Round) Understanding Regarding Notification (BISD 26S/210; The full text is set out in the GATT Analytical Index on page 635). That provision refers to "action under Article XXIII:2." As discussed by Brazil, such “actions” are multilateral actions by the CONTRACTING PARTIES, not individual action by a particular contracting party.

47 US Initial Brief, para. 9.

48 WT/DS267/1 at 3.

49 WT/DS267/7.

50 WT/DSB/M/143, WT/DSB/M/145.

51 WT/DS108/AB/R, “United States – Tax Treatment for “Foreign Sales Corporations”, para. 165.

52 The New Shorter Oxford English Dictionary, 1993 edition.


53 Le Petit Robert, Nouvelle édition ... 1982.

54 Diccionario de la Lengua Española (Real Academia Española), vigésima segunda edición, 2001.

55 Id.

56 US Initial Brief para. 8.

57 Argentina’s Third Party Initial Brief, para. 6;

58 Initial Submission by the European Communities, paras. 6-7;

59 India’s comments on preliminary issue regarding the Peace Clause of the Agreement on Agriculture, para. 6.

60 Initial Submission by the European Communities, paras. 6-7; India’s comments on preliminary issue regarding the Peace Clause of the Agreement on Agriculture, para. 6.

61 Guatemala – Anti-Dumping Investigation Regarding Portland Cement from Mexico, WT/DS60/R,




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